A happy moment: the bank has approved the required loan and it is now ready for use. The instalments are paid on time and everything is fine. But all of a sudden the monthly instalment to repay the loan – for example for health reasons – can no longer be paid in the agreed amount. So what to do?
Anyone taking out a loan enters into an obligation to repay the loan granted by means of monthly instalments plus interest at the latest when the corresponding loan agreement is signed. As long as the borrower fulfils this obligation, everything is fine and there are no problems with the bank granting the loan. And yet it can happen that the loan taken out becomes an unexpectedly high financial burden. This happens exactly at that moment when the borrower realises that the chosen loan instalment can no longer be serviced. So what can be done?
Interest rate is too high? This is to be done when there is a shortage
If there is only a little more money than usual available for a short time, most banks offer the possibility to ask for a so-called deferral of the instalments. As a rule, banks grant the deferral of a maximum of three monthly loan instalments. However, this does not mean that these instalments do not have to be paid. A deferral is tantamount to the fact that the number of deferred instalments means an extension of the credit period.
However, there is no general right to breaks in instalments or deferral of instalments. All too often, local credit institutions have very different regulations in this respect. For some loans it is not even possible to suspend the instalment, for others only under certain conditions. After all, the fees for instalment breaks are usually manageable. Where the service of a flexible instalment arrangement is not free of charge anyway, the credit institution often charges an amount between 15 and 30 GBP.
It is important, however, that with the realisation of the fact that one or even several instalments for the loan cannot be served due to an extraordinary situation, an immediate contact with the lending bank is made. The longer you wait to inform the bank about this circumstance, the more difficult it can become to find a suitable agreement with the bank.
How to lower your monthly repayments
If the disposable income rises because, for example, a wage increase has taken place, a special payment (Christmas bonus, holiday pay, etc.) is available, a large amount of money can possibly be saved by increasing the rate. This is because an increase in the rate for a loan taken out can reduce the term of the loan, which is mainly reflected in savings on interest costs.
So if you repay the loan granted more quickly, you save cash money. However, this is not a general right and needs to be well thought out. If the loan instalment is to be increased, it is important to take a close look at the conditions from the loan agreement, because banks usually demand a so-called prepayment penalty. With this, the bank compensates for the interest gain lost due to the reduction of the credit period. If the bank demands such an early repayment fee, it is important to find out the exact amount (often as a percentage of the total loan amount).
It is also important to consider to what extent an increase in the monthly loan instalment is worthwhile, or whether a one-time special payment would be worthwhile. Here, too, it can happen that banks show different fee models for this.
As a matter of principle, the aim of a quick repayment should always be the main focus of an existing loan. However, if the punctual repayment of a loan instalment is not possible, immediate contact with the credit institution is a must. If this does not happen and the bank initiates possible dunning procedures up to the loan termination due to missing instalments, the problem “loan” to be solved as a consequence is much bigger.